Your guide to understanding inheritance tax: how it works and what you can do to reduce it

Grandparents estate and financial planning with Charles Stanley Wealth Manager in Leeds

Thinking and talking about your finances sooner rather than later can help you plan ahead, save for your family's future and reduce the IHT you need to pay. - Credit: Getty Images/iStockphoto

We ask the experts about paying inheritance tax, what it means for your finances and how it can affect your family's future.

“Not talking about money can affect your family more than you realise and in ways you may not have even considered,” explains Jonathan Baker, director of investment management at Charles Stanley Wealth Managers in Manchester.

“According to our research*, just a fifth (22 per cent) of UK adult respondents admitted that their family discusses inheritance. Families shy away from discussing finance because it can feel indelicate or cause tension, but avoiding these conversations can cost you thousands in unnecessary tax and also damage relationships.”   

Below, Jonathan tells us more about inheritance tax (IHT) and offers some tips to help get your family talking.

Q: What is inheritance tax?

A: It’s the tax you pay on your estate after you pass. Many assets are taxable, including any property, wealth and possessions.

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You could consider investing some of your wealth to mitigate the amount of IHT you may be liable to pay. - Credit: Getty Images/iStockphoto

Q: Who needs to pay inheritance tax and how much is it?

A: You may need to pay IHT if the total value of your estate is above the minimum threshold of £325,000. To help you understand what IHT costs you may incur, you will need to know the full value of your estate and assets. This is why estate planning and reviewing your finances regularly is a good idea, especially for homeowners and business owners that may have more complex estates.

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The executor of the estate (named in your Will) is then responsible for handling the probate process, a legal requirement, where they gather the value of all assets at the time of a person’s death and submit this information to HMRC.

Q: Can I lower the amount of IHT I need to pay?

A: There are ways to mitigate the amount of inheritance tax you may be liable to pay and ensure your beneficiaries receive as much as possible. Several commonly used ways to reduce or mitigate IHT include (but are not limited to) using your exemptions and allowances, spending, gifting, making charitable donations, and investing in Business Relief Schemes.  

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Seeking help from a financial professional can help ease worries you may have about finances and safeguard your family's future. - Credit: Getty Images/iStockphoto

Q: What are the benefits of investment management?

A: With a discretionary investment portfolio, we can help preserve your capital, grow your money efficiently and ensure you're able to pass on as much as possible. You can invest in what matters most to you, whether that is UK companies to help support local businesses, climate change, or aging population healthcare.

Q: What are the benefits of financial planning?

A: Thinking ahead, reviewing your finances and putting plans into place can help ensure you pass on as much wealth as possible and provide a financially secure future for your family. Taking a proactive approach to your finances can help you minimise costs like IHT, and will give you more options of what you can do with your hard-earned money.

Financial planning can also help you prepare for life’s unexpected turns. We meet regularly with clients to review, update and balance their financial plans. Your living costs may increase should you need to fund care, if you want to move house and downsize, or welcome a new family member.

We can provide guidance and use our insight to create a flexible financial plan that enables you to live comfortably and still pass wealth on. 

Q: Why is it important to be open with my family about money?

 A: Though inheritance can be a tricky topic to approach, being open about what you intend to pass on to your children, and grandchildren can be beneficial. It teaches them about money and how to use it responsibly. By talking about the future, you can also get an estimate of how much money you wish to pass on and consider what financial decisions you need to make to achieve your goal.

How to talk finances with your children, help from Charles Stanley Wealth Managers in Leeds

If you're child is off to university, now could be a great time to talk about budgeting and how they can spend money responsibly. - Credit: Getty Images/Image Source

Q: How can I start a conversation about my finances?

A: These conversations are rarely straightforward, but there are some simple steps you can take to make it easier:

  • Use a friend as an example – ask people you know if they’ve discussed finances with their family, then you can refer to them when talking to your family. It can help make it less personal and put everyone at ease.   
  • Make the most of opportunity – if something significant is happening in your family’s life, use this as a jumping-off point to talk finances. If your child or grandchild is going to university, it’s a great time to discuss budgeting.   
  • Be open and honest – if you talk about money in this way, it will encourage other members of your family to do it too.   
  • Address the basics – make sure your paperwork is in order. Consult with an adviser to ensure your Will and Enduring Powers of Attorney are up to date.
  • Seek financial or legal advice if you need it - if there’s an issue you can’t seem to move past, consider speaking to a financial professional who can offer an objective opinion.

We know how nerve-racking it can be to start these kinds of discussions, which is why our firm is dedicated to helping our clients be more confident.

We can arrange a free consultation at your home, over the phone or via video call, and will get to know you and discuss ways we can help you secure your family’s financial future.

To book an appointment or find out more, visit or call 01618 206328. 

The value of investments can fall as well as rise. Investors may get back less than invested. Past performance is not a reliable guide to future returns. The information in this article is based on our understanding of UK Legislation, Taxation and HMRC guidance, all of which are subject to change. Charles Stanley & Co. Limited is authorised and regulated by the Financial Conduct Authority.

*Research was carried out by Censuswide among a UK representative sample of 2,018 adults. The survey was completed in February 2020.